March 27 (Reuters) - European shares fell on Friday as investors remained wary about the outlook of the Middle East war that has stoked inflation risks and clouded global economic growth prospects.
European shares fall as mixed Mideast signals cloud outlook
Market Performance and Economic Impact
By Avinash P, Johann M Cherian and Niket Nishant
March 27 (Reuters) - European shares fell on Friday but logged a modest gain for the week, illustrating the conflicting signals from the Middle East that investors have had to grapple with.
STOXX 600 Index Movements
The pan-European STOXX 600 index dropped 0.9% on the day and was last trading at 575.37, with most sectors in the red. Still, the index gained 0.4% for the week.
Investor Sentiment Amid Geopolitical Tensions
While investors have been hoping for a swift resolution to the war, fatigue is beginning to set in as messages from Washington and Tehran diverge.
U.S. President Donald Trump has sparked hopes of a ceasefire in recent days, but Iranian officials have struck a more measured tone.
Strait of Hormuz and Oil Prices
Trump gave Iran another 10 days to reopen the Strait of Hormuz, a crucial shipping route for oil, or face the destruction of its energy plants, after Iran rejected his proposals to end the war.
"If this situation is not resolved within the next couple of weeks, global oil inventories will decline toward historic lows and prices would need to rise to induce demand destruction," said Sam Peters, portfolio manager at ClearBridge Investments.
Oil prices gained, increasing pressure on European economies, which rely heavily on imports.
"Stocks will not start to find their footing on a meaningful basis until we have negotiations underway that explicitly involve the reopening of the Strait of Hormuz. Iran has its foot on the windpipe of the global economy," said IG's chief markets analyst, Chris Beauchamp.
Inflation Fallout
The economic repercussions of the war are beginning to reflect in data. A survey earlier this week showed that private sector growth slowed sharply in March as the war drove input costs to their highest in more than three years and triggered the worst supply-chain disruptions since mid-2022.
Worries about a potential surge in inflation have lifted bets for an April rate hike by the European Central Bank to 57%, according to LSEG-compiled data. Prior to the war, investors were largely expecting the central bank to hold rates through the year.
Stock Highlights
Major Movers
Among individual stocks, Dino tanked 16% after the food retailer flagged that 2025 sales rose at a slower rate, partly due to uncertainty among consumers.
Pernod Ricard advanced 8% after the spirit maker said it is in discussions for a possible merger with Jack Daniel's owner Brown-Forman.
AstraZeneca added 3.4% after the drugmaker said its experimental respiratory treatment Tozorakimab met its main goals in two late-stage trials.
Sector Performance
Media stocks fell 2.7% and were the biggest laggard on the STOXX 600, dragged down by a 23% drop in shares of CTS Eventim following its disappointing forecast for the year.
German equities dropped 1.4%, while Spanish stocks slipped 1%.
(Reporting by Avinash P, Johann M Cherian and Niket Nishant in Bengaluru; Editing by Sonia Cheema, Ronojoy Mazumdar and Alan Barona)
